Question

An investor purchases 150,000 shares with anti-dilution rights for $500,000. In a subsequent financing round, a new investor invests $100,000 for 50,000 shares.
Is the subsequent financing round a up-round or a down-round?

How many new shares must the first investor be given under the anti-dilution provision?

Answer 1

Answer :

If a subsequent round of financing involves selling shares below the first-round price, then it is a down round.

New shares that must be given to first investor will be at the price at which the subsequent share was issued to second investor.

Price to second investor = ( 100000/50000 ) ==> 2 per share

So, for 500,000 of first investor, he should get (500000/2) ==> 250,000 shares.

But he got only 150,000 shares

So new share must be issued to them will be equal to ( 250,000-150,000) ==> 100,000 shares